Why do most employees don’t get rich ?

Google+ Pinterest LinkedIn Tumblr +

Employees do not get rich because they are treated like debt. This is a metaphoric explanation that I come up with to explain why employees’ remuneration is not proportional to their output. Employee that are defined here commands a fixed salaries, if there are any commission element in their remuneration system (E.g.: salesman) then that job is not within the scope of the definition.

Employees demand a fixed salary which should be paid by the company during good times and also bad times. When the company cannot pay the employees’ salary, then the company is essentially bankrupt. Therefore, like debt, employee represents a kind of financial leverage to the company.

Now the nature of debt or financial leverage in general is that the holder of debt instrument gets a low and fixed amount of return because when compared to equity, a debt has lower risk. Therefore, a debt holder does not enjoy greater return when the company is making a lot of profit. Much like employees, they do not enjoy greater share of the money when the company is making huge profit, but they do get a fixed amount of salary when the company is going through hardship.

This may not hold true for employee that has competitive advantage in a firm like a star trader or a star computer programmer. They paid huge year-end bonuses when their company are making huge profit that is directly attributable to their work. However, most employees do not enjoy such privilege. This is why most employee don’t get rich

Share.

About Author

Leave A Reply